We consider a dynamic economy in which agents are initially unaware of some risks. As awareness of these risks emerges, markets re-open so agents can re-optimize and purchase insurance. An inefficiency may nonetheless arise as the cost of insurance is not spread over time. This "savings mistake"...

We consider a dynamic economy in which agents are initially unaware of some risks. As awareness of these risks emerges, markets re-open so agents can re-optimize and purchase insurance. An inefficiency may nonetheless arise as the cost of insurance is not spread over time. This "savings mistake"...

Costly information acquisition is introduced into a dynamic trading model of Glosten and Milgrom (1985). The market maker and some traders, called "value traders," value the asset at its fundamental value, which can be either high or low. The remaining traders, called "liquidity traders," have...